What Happens When You Pay Off Bad Credit

When a piece of “bad” credit exists on my report, what happens if I pay it off? Is it automatically updated to “good” credit? Does it still reflect negatively on my report? Are the months that I could not pay still reflected, but changed to a $0 balance?

– GTH

Dear GTH,

One of the most common myths about credit reports is that if you pay off a bad debt it will be deleted immediately. That’s not true.

Your credit report is a credit history. It not only shows whether or not your bills are being paid on time now, but also whether they were late in the past.

Every account entry in your credit report has a status description. It describes the present payment status and also whether it was ever late in the past. If the account payment was late, the status description will say how late.

For instance, an account that was never late will have a status line that says, “current, never late.”

Once brought current, the account status for the situation you describe would say, “current was ___ days late.” The number in the blank would depend on just how many payments you missed.

The account entry also would show the current balance, which would be zero if it were paid off, as well as the high balance in the past.

Paying off the balance is positive. However, the late payments would continue to have some negative impact. The further in the past those late payments happened, the less negative they become.

The good news is that the negative information will be deleted seven years from the original delinquency date on the account. So, if you keep making the payments on time, the “bad” information will be deleted and only “good” information will remain.

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